Speaker Boehner, President Obama both dig in and talk compromise

WASHINGTON (MarketWatch) — Talks seeking a deal to avert the fiscal cliff of spending cuts and tax hikes will get under way at the White House next week after President Barack Obama Friday asked bipartisan congressional leaders to meet with him on the issue.

“The American people voted for action, not politics as usual. And in that spirit, I have invited leaders of both parties to the White House next week so we can start to build consensus around the challenges that we can only solve together,” Obama said in a statement at the White House.

President Obama delivers a statement on the “fiscal cliff” in the White House on Friday.

This was Obama’s first policy statement since he won a second four-year term.

President Obama said he would also invite business and labor leaders to come and discuss the question of how to get a handle on the $1 trillion deficit. The talks with congressional leaders will take place on Nov. 16.

When Congress could not reach a broad deficit deal last year, lawmakers instead set up a deadline for January when spending cuts would kick in and existing tax cuts expire. Economists now warn that this steep austerity package would throw the economy back into recession.

Obama held out an olive branch to Republicans, saying he would listen to their proposals.

“I am not wedded to every detail of my plan. I am open to compromise. I am open to new ideas,” he said.

Obama added he was open to reform of the Medicare and Medicaid entitlement programs. Many Democrats oppose significant changes to these programs.

But Obama said he would “refuse to accept any approach” that did not contain a larger tax burden on the wealthy.

“I am not going ask students and seniors and middle-class families to pay down the entire deficit while people...making over $250,000 are not asked to pay a dime more in taxes,” he said.

White House spokesman Jay Carney later underlined the point, saying explicitly that Obama would veto any bill that extends the Bush-era tax cuts for the top 2% of wage earners.

Earlier in the day, House Speaker John Boehner also talked compromise while digging in against any hike in tax rates.

Boehner said he was hopeful a deal to avert the fiscal cliff of spending cuts and tax hikes can be reached.

Speaking to reporters on Capitol Hill, Boehner warned that raising taxes on top earners “will slow down our economy.”

On Wednesday, Boehner said that new revenue is acceptable to Republicans under the right conditions but should come through growth and reform, not higher tax rates.

Obama said he was “encouraged” by Boehner’s remarks.

Obama to House: Extend middle-class tax cuts now

President Obama called on the House to swiftly pass a freeze on middle-class tax rates. The Democratic-controlled Senate passed this freeze before the election. Pulling a pen from his pocket, the president said he was willing to sign such a measure “right away.”

“That one step...would immediately take a huge chunk of the economic uncertainty off the table,” Obama said.

Analysts said Republicans would likely be leery of separating middle-class taxes from a broader deal.

The White House and House Republicans have a big task ahead, trying to figure out a compromise that can garner enough votes to pass the Republican-controlled House and win approval by Democrats in the Senate.

Sen. Charles Schumer, Democrat of New York, on Thursday welcomed Boehner’s tone this week on the fiscal cliff. “It makes me very hopeful we can do something very big in the next month and a half,” Schumer said during a breakfast with reporters in Washington.

He said Boehner has opened the door for negotiations although he quickly noted that the structure of the talks has not been decided.

Looking farther ahead, Boehner said at his news conference that he wants to reform the tax code and suggested he is eyeing changes to loopholes and deductions. He said it’s clear that there are several special-interest loopholes in the tax code, and that lowering rates while cleaning up the code will bring in more revenue.

Boehner listed no targets but said: “There are a lot of ways to get there.”

The fiscal cliff is front and center as Obama and Congress approach the lame-duck session due to begin next week.

The congressional Budget Office said on Thursday that the U.S. economy would likely shrink by 0.5% in 2013 and the unemployment rate would likely rise to 9.1% from 7.9% if the spending cuts and tax increases are allowed to take full effect.

Former top Federal Reserve economist David Stockton said that the U.S. would suffer “a lost decade” if Washington failed to avert a fiscal cliff.

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